March 17, 2014

NERC abolishes flat tariff system

NERC abolishes flat tariff system

Protesting PHCN workers


NIgerian electricity consumers may no longer pay flat tariff rate, if the promise of the Nigerian Electricity Regulatory Commission, NERC, is anything to go by.
The Special Adviser, Research and Strategy, NERC, Mr. Uche Okoro, stated this in a chat with Vanguard on the sidelines, at the just concluded refinancing assets in the Nigerian power sector workshop, organised by Detail Commercial Solicitors in Lagos.

According to Okoro, NERC has mandated the new owners of the GENCOs and DISCOs to engage consultants to help check how healthy they are.

“NERC has mandated the new owners to engage consultants to help check the health of their GENCOS and DISCOS. That is to get the number of their customer base, the loss base, the bypass levels and everything that is happening there, the transformers that are down, the quantity of electrons they need to sell, the accuracy of the consumption level in their areas that NERC did not know before.

“When these data come in, what follows will be to look at the facts, with the facts we have in the multi-year tariff order, MYTO. Remember MYTO has progressed. Before now, we used to have one flat tariff system for the entire country. Now, it has been disaggregated into 11. NERC agreed that it is not what somebody in Yola pays that the person in Lagos or Port Harcourt should pay,” he said.

Okoro also explained that though the next major tariff is expected in 2017, it may not be carried out until NERC gets all the needed data which have been non-existent in the past.

“The problem is the data we used in the last review came from PHCN and sourced from PHCN. PHCN was good in opaque management. They never revealed their facts. They did not do their financial reporting. They did not want to reveal their customer base properly. They did not want to say how many people they gave meter to. They did not want to be open because they did not want to show their real fiscal state. They knew that change was coming and so their mind was not in the business any longer. We could not rely on their data.

Financial penalty
“But we have to still use the data and there were a lot of approximations in the MYTO. And now, the new owners, the people we can put financial penalty on if they give us inaccurate data, the independent people who have something to lose if they put inaccurate data on the table, the people who put in billions and will be in the business in the next forty to fifty years, so they have a future in the industry, it is not in their interest to manipulate figures. They are vulnerable to the whip of the regulator, because they are not government backed like PHCN,” he said.

Okoro also said that the data collected from the new owners will determine when and how tariffs will be adjusted.
“All the studies they are bringing in the result are going to be disco specific. When they come in, as we look at the tariffs, the building blocks in the multi-year tariff order, we start to look at the data which they bring, which are now close to reality. The differentials between it and the one PHCN gave us, which are more of estimates and guess work; we will now start to see what needs to be adjusted.

“If the differentials are huge in certain issues and you look at the window of MYTO, your start off to understand that maybe something has to change. You don’t have to wait for 2017 to change, because you are now looking at a very huge variable. That is the problem with tariff increase. We should not be obsessed with tariff increase or be sensational with it. It is about the reality in the building block.